Government

The snap election which took place on Sunday resulted in a political deadlock in Spain. No single party has won enough seats to form a government. More importantly, both the left-wing bloc and the right-bloc fell short of the 176-seat majority needed in the 350-seat lower house. Negotiations are taking place as we publish, but neither side can see a clear and straightforward path to form a working government. Spain is heading into a political deadlock.

While excellent state & local government balance sheet health will remain a tailwind for muni returns, poor valuation prompts us to downgrade the sector from overweight to neutral.

Spain is holding a general election this Sunday and the country is likely to veer to the right. Will this shift threaten European unity and herald a new period of tensions in the Eurozone?

Falling inflation enables central banks to pause rate hikes, which is good news. But time goes on. Restrictive monetary policy, Chinese debt-deflation, energy supply shocks, US and global policy uncertainty, and extreme geopolitical risks will undermine hopes of a soft landing and beautiful disinflation.